Hold Cipla; target of Rs 545: ICICI Direct
ICICI Direct’s research report on Cipla
Q3FY19 results were in line on the operational front but net profit was higher than I-direct estimates due to higher other income. Revenues grew 2.4% YoY to Rs 4007.5 crore (I-direct estimate: Rs 4081.6 crore). A 31% YoY growth in the US to Rs 849 crore (I-direct estimate: Rs 781.2 crore) was largely offset by 1% decline in domestic market to Rs 1585 crore (I-direct estimate: Rs 1681.1 crore) EBITDA margins contracted 326 bps YoY to 17.7% (I-direct estimate: 17.0%) due to lower gross margins and higher employee cost. EBITDA de-grew 13.6% YoY to Rs 707.7 crore Net profit declined 17.1% YoY to Rs 332 crore (I-direct estimate: Rs 290.1 crore) due to lower operational performance.
The key highlight of the result was strong traction in the US business both on YoY and QoQ terms. The US business has now almost completely transformed into direct to market (DTM) thus giving the company enough flexibility to leverage on its capabilities in a tough market like US. On the Africa front, the company continues to rebase its business model towards private business in the backdrop shrinking tender opportunities. India was muted during the quarter but remains on course of double digit growth in the long run. This transformation across geographies from tenderised model to public model is likely to continue for some time. This may have some implications on margins initially. We ascribe a target price of Rs 545 based on 20x FY21E EPS.
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